Toyota, Honda Slide in Supplier Survey a Surprise

Count John Henke among those shocked by Toyota and Honda’s continued slide in his company’s survey of supplier-auto maker relations.

“I was, quite frankly, very surprised,” says the president of Birmingham, MI-based Planning Perspectives, which today is releasing the results of its 12^th Annual North American Automotive OEM-Tier 1 Supplier Working Relations Index (WRI) Study.

“Last year, I had quite confidently predicted that they would at worst flatten out and at best have a slight uptick,” Henke tells WardsAuto. “And I was absolutely dead wrong.”

The survey of 564 supplier personnel from 439 companies, representing 62% of the top six auto makers’ annual buy, indicates Toyota and Honda remain the best at supplier relations. But the gap is closing, and the group as a whole is “converging toward mediocrity,” Henke says.

Just 48 points on Planning Perspectives’ WRI separates top-performer Toyota (296) from bottom-ranking Chrysler (248), a gap that was 276 points in 2006. Honda (293) is a fraction behind Toyota, followed by Ford (267), Nissan (256) and General Motors (251).

The survey asks supplier executives to rate their relationships with the six OEMs based on such things as level of communication, profit opportunity, overall quality and whether the auto maker is more of a help than a hindrance.

Toyota and Honda both have been on a steady decline since peaking in 2007, which Henke attributes to executives distracted by financial pressures caused by the market’s downturn in 2008. Last year’s natural disasters in Japan and Thailand also may have hampered efforts to reverse course.

Still, Henke says Toyota and Honda have been working hard to repair their Tier 1 relationships, and, once again, he is predicting their WRI scores will climb the next time around.

“I would say the same thing I said last year,” he says. “Next year, they’re going to get better. I’ve talked to people at both companies, (and) they are very concerned about the drop because they know the benefits they’ve been getting by having really good relations.

“I’m as confident today as I was a year ago. I think they’re going to get better.”

Chrysler and GM made the biggest gains on the 2012 index, and Henke praises the way their purchasing chiefs have recalibrated the companies’ approach to suppliers. He thinks both will continue to show improvement in the next year as well.

“They’re making money,” he notes. “The economics don’t cause it, but they allow you to be a little more relaxed, because things are going well. So you can really focus on things like good relations.”

Though nestled in the middle of the pack, Ford and Nissan have stagnated, Henke notes, which he blames partly on having relatively new people in key positions who need to step up their games.

Planning Perspectives only recently has begun to survey suppliers of German auto makers in North America, and Henke says he’ll need another year or two of data to draw any firm conclusions.

But attitudes toward BMW, Mercedes and Volkswagen in North America have worsened, which Henke believes may be a result of some management shuffling at all three auto makers, plus growing pains caused by the launch of VW’s new Chattanooga, TN, plant.

Overall, auto makers need to do a better job of ensuring good supplier relations are part of the culture company-wide. In the study, Tier 1 executives rate auto companies differently depending on the department. For instance, respondents put Honda’s electrical and electronics purchasing team 97 points higher than its body-in-white department.

Those surveyed say while OEM upper management understands relationships are important, the message has not filtered down effectively to front-line purchasers.

“The buyers who deal on a day-to-day basis aren’t being driven to act the right way,” Henke says. “We know they’re paid in many instances to get their cost down. But I don’t think any OEM has metrics that say, ‘We also want you to improve relations with all the suppliers with which you deal.’

“That has to be done.”

Some suppliers contend Detroit auto makers are showing signs of backsliding. So far the evidence is anecdotal, but it bears watching, Henke says.

Falling back down the WRI scale “is very easily done,” he notes, adding even a return to a more contentious philosophy of 5% annual price cuts is possible but would be a critical error. “That’s the absolute dumbest thing to do. It is not sustainable. That’s a race to the bottom, and it will eventually destroy suppliers.”

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